BSkyB Analysts Discuss European Pay TV Deal, Stock Drops

Most observers say the U.K. pay TV giant will remain in a solid financial position, but one wonders about its flexibility to bid on English soccer league rights.

LONDON — Analysts on Friday discussed the financial details of a long-expected deal announced in the London morning hours that will see Britain's BSkyB acquire Sky Italia and Sky Deutschland from 21st Century Fox for $9.1 billion to form a pan-European pay TV giant.

Rupert Murdoch'sFox will retain a 39 percent stake in BSkyB.

Analysts mostly focused on the financial flexibility for BSkyB after the deals, including its ability to bid for English Premier League soccer rights next year when British telecom giant BT is expected to once again bid aggressively. BSkyB in the most recent rights negotiations retained rights to a majority of games.

Jefferies & Co. analyst Jerry Dellis said that BSkyB's decision to partly fund the deal by issuing additional stock to investors was "a mild surprise" but leaves the "post-deal BSkyB balance sheet in a stronger position."

If many Sky Deutschland minority shareholders accept a BSkyB buyout offer, the firm's debt leverage will rise, which could "constrain BSkyB's flexibility a little" in the next auction for English Premier League rights, Dellis said. "Investors might wonder what room [to] maneuver BSkyB retains heading into the EPL auction, likely in the first quarter of 2015, particularly if a sizable proportion of Sky Deutschland minorities do tender."

Sanford C. Bernstein analyst Claudio Aspesi was among the various analysts giving positive reviews to the deal, and he suggested that it could actually reduce investor concern about the next EPL rights auction.

"It is a deal that makes sense strategically," he told The Hollywood Reporter. "BSkyB can now seek growth outside the U.K., defusing — to some extent — the risk of a major price war with BT over content."

Meanwhile, UBS analyst Polo Tang said the‎ Sky Europe deal was "broadly as expected," but the prices it will pay for Sky Italia and Sky Deutschland are "lower than expected."

‎He also lauded the possible upside to synergy forecasts, saying: "Cost synergies from the deal will be £200 million per year by 2017, but we see further upside from revenues synergies that could take synergies to more than £300 million."

Concluded Tang: "We are positive on the creation of Sky Europe, as it will create a scale player with the ability to acquire pan-European rights and deliver faster growth."

Numis analyst Paul Richards also focused on synergy promises, writing in a report: "This level of synergies is consistent with our upper-end forecasts but will be achieved more quickly than we had expected."

However, Aspesi cautioned that the deals would also bring risks for BSkyB and its investors.

"There is no such thing as a free lunch," he said. "Germany has a very large potential for further growth, but it remains to be proved that German consumers will take up pay TV at levels seen elsewhere in Europe. Similarly, Italy could pose headaches both because of the general conditions of the country and because [competitor] Mediaset Premium will likely continue to fight for content and subs."